Quality education is the new norm. Competitive job markets have raised the bar for higher education. The cost of higher education in private institutes is 3 times higher than in government institutes.
These days, a 4-year medical degree course costs around 15-20 lakhs in decent colleges. Whereas IIM and IITs will charge you anything around 30-50 lakhs. Studying abroad will add up everything from 80 lakhs to 1 crore expenditure. Students relying on international universities also have to pay for travel, residence, mandatory course material, tuition fees, etc.
There is education. There are dreams. And thankfully, there are education loans. Hence, Section 80E of the Income Tax Act was introduced to provide some relief to taxpayers paying high education expenses. Now you must think about whom to consult for such tax exemptions. Digilekha is here to solve all your tax compliance services queries.
Let’s understand education loan tax benefits and how to claim these tax deductions when you file your income tax return.
Deduction from income under Section 80E – Eligibility
The benefit of section 80 E is available to individuals only.
The loan must have taken for pursuing higher education ( Pursued after passing Senior secondary examination or equivalent) for self or relatives’ education. Relative means spouse, any child or student for whom the taxpayer is the legal guardian.
The loan should be taken from any financial institution ( Bank, notified Financial institution) or approved charitable institution [u/s 10(23C)/80G(2)(a)]
The entire amount paid as interest is deductible under Section 80E from the total income from the income of the Individual who availed the loan. The deduction is besides the deductions specified under section 80C.
What is the maximum tax deduction limit for education loans?
P.S. There is no limit bar for claiming tax deductions on interest paid on education loans, but taking an education loan has a dual advantage. One can also claim tax benefits of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act on tuition fees paid for your children–up to a maximum of 2 children.
There is no upper limit to avail tax benefits on the entire amount of interest paid. Deduction under Section 80E can be availed irrespective of the amount of loan which can range from INR 1 lac to INR 20 lacs or even more…
For example, if the overall EMI of your education loan is Rs. 20,000, and Rs. 14,000 is the principal component and Rs. 6,000 is the interest component, you can only claim Rs. 6,000 per month. So, for the overall EMI paid on the loan, you can claim Rs. 72,000 for the financial year as tax deductions.
It is availed only on higher studies, which refer to the education level after completing the senior secondary examination (SSE) including vocational courses as well. Hence, a loan taken for post-graduation courses like medicine, engineering, architecture, management, applied sciences, etc is covered.
If you pay interest within the same year of borrowing, then you can claim a deduction for the payment of interest on the same loan. The maximum period allowed to claim the deduction is up to 8 years starting the year in which you repay the interest on the loan or till the time interest is paid fully, whichever is less.
Things to remember
- You can avail of tax benefits of education loans only on the interest paid and not on the principal amount.
- The deduction can be availed only if the loan is taken for higher education.
- Section 80E education loan tax benefits are only allowed for 8 years, counted from repaying the loan.
- If alternative tax regime u/s 115BAC is opted, the deduction u/s 80E is not available.
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